Stores Sue Makers Of Drugs A Group Of Pharmacies Is Charging Price-fixing. They Say Retailers Pay Up To 12 Times More Than Other Buyers.

Posted: October 15, 1993

NEW YORK — One major sector of the health-care industry turned on another yesterday, as a group of major drugstore operators filed a federal lawsuit accusing big pharmaceutical manufacturers of price-fixing.

The suit, filed in U.S. District Court in Harrisburg by Rite Aid Corp., of Camp Hill, Pa., Revco D.S. Inc., of Twinsburg, Ohio, and other major chains,

underscores growing turmoil in the health-care industry. It accuses seven

drug-makers of charging retail stores up to 12 times as much as they do health-maintenance organizations, hospitals and some mail-order drug firms.

Rite Aid chairman Alex Grass, speaking at a New York news conference, said the suit would have "a sweeping impact on our industry and benefit millions of American consumers if we are successful in court."

He estimated that excess prices charged the drug chains totaled hundreds of millions of dollars per year - savings he said would be passed on to consumers should the drugstore alliance prevail in court.

In their broad antitrust suit, the pharmacies charge that the drug-makers have "acted in concert" to prevent drugstores from enjoying the cut rates offered HMOs and other "favored" customers. The suit seeks unspecified damages and an order requiring the drug-makers to offer drugstores the same prices as other customers.

The suit represents 5,000 retail pharmacies across the country, or about 10 percent of all retail drugstores.

The pharmaceutical manufacturers named in the suit reads like a Who's Who in the drug industry, including SmithKline Beecham Pharmaceutical Co., whose U.S. headquarters is in Philadelphia; Pfizer, of New York, and Schering-Plough Corp., of Kenilworth, N.J.

Several of the defendants issued statements yesterday denying their pricing policies were illegal, though most declined to comment on the specifics of the suit.

Schering-Plough spokesman Ronald Asinari promised a vigorous fight.

"We are confident of the legality of our pricing practices," Asinari said. "The charge that Schering-Plough has violated anti-trust laws is both reckless and groundless. We will vigorously defend ourselves in this lawsuit." Pfizer spokesman Brian McGlynn said, "We do want to make it clear that all our products are priced in conformity with all legal requirements, and we have not engaged in any price-fixing of any kind."

On Wall Street, meantime, investors yesterday actually drove up the prices of many of the defendants named in the suit, including SmithKline, Schering- Plough and Pfizer.

At the news conference, Grass charged that major drug manufacturers, "have engaged over a long period of time in illegal price-discrimination practices and have illegally combined to fix prices."

The plaintiffs said yesterday that in one case, Schering-Plough charged retail pharmacies 12 times more for K-Dur, a potassium capsule, than it charged an HMO or hospital.

However, Rick Sluder, spokesman for Glaxo, Inc. in Research Triangle Park in North Carolina, another defendant, said that the practice of offering discounts to some customers but not others already had passed federal scrutiny.

"Offering discounts, that's a practice that's common not only throughout our industry but throughout business in general," he said.

He said, "the Federal Trade Commission has examined this practice of different prices to different customers, and they've recognized it as pro- competitive. It stimulates competition. And they've concluded it does not violate anti-trust law."

The other defendants are: American Home Products Corp. of New York, parent of Wyeth-Ayerst Laboratories Inc., of St. Davids, Pa.; Ciba Geigy Corp., of Ardsley, N.Y., and Searle Corp., of Skokie, Ill.

The only defendant that is not a drug-maker is Medco Containment Services, Inc., a Montvale, N.J., mail-order pharmacy business. Medco is accused of inducing price discrimination through agreements with other defendants.

In one instance, the suit alleges, Medco agreed to actively market SmithKline's ulcer drug, Tagamet, instead of a competing product, in exchange for discounts and rebates from SmithKline.

Grass acknowledged that pricing discounts have existed for a long time, but said that lately they have taken a larger toll on pharmacies because one- time customers are now serviced by third-party health providers such as health-maintenance organizations.

HMOs typically require that patients purchase medication through approved suppliers. The reduced rates the drug-makers offer the designated suppliers make it impossible for retail drugstores to compete for this business, Grass said.

The suit accuses the drug-makers of violating the Sherman Antitrust Act by making deals with wholesalers that set the prices those wholesalers can charge ''favored purchasers" like HMOs and hospitals.

The remaining plaintiffs are Thrifty Corp., Los Angeles; Perry Drug Stores Inc., Pontiac, Mich.; K&B Inc., New Orleans; Kerr Drug Stores Inc., Raleigh, N.C.; Snyder's Drug Stores Inc., Minnetonka, Minn.; Thrifty Drug Stores Inc., Minneapolis; Bartell Drug Co., Seattle, and Taylor Drug Stores Inc., Louisville, Ky. In addition, there are the owners of 10 individual drugstores in Minnesota.

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